Nothing is ever constant in this world, don’t you think so? Change is almost always the only constant. When we talk about change, the one place you would have to keep an eye on is the stock market. How? The stock market moves, and how it constantly moves keeps us on our toes. When the stock market shifts from here to there – you know what you should be doing? How the stock market shifts are not in your hands – but how you move based on these stock market shifts is in your hands.
In this article – we are going to be speaking about the mistakes you can’t make when it is a bull market. But before we can get started, let’s get our facts straight.
What is a Bull Market?
A bull market is an exciting environment, and a bull rise is as thrilling for an investor as a roller coaster ride. Every other trade ends up generating a lot of money, investors brag about their fantastic profits on social media and in personal networks, and the general market mood is quite favorable. Nothing can go wrong, or so a typical retail investor believes when deciding to invest in a bull market.
Ironically, while everyone feels like a genius and a successful investor during a bull market, it’s incredibly easy to make mistakes. While the fear of making mistakes should not prevent you from investing, it is important to learn from history and the examples of others in order to invest wisely.
Given that we have no clue that the share market today would be the same share market tomorrow – so, here we can know about a few things we just should not be doing during the surges of a bull market.
What to Not Do in a Bull Market?
As a growth investor, there are just a few things you cannot do during the bull market, and they are:
1) Don’t Try to Modify Your Risk Profile
When everything is fine, and the markets are euphoric, investors prefer to increase their risk profile. Say, from conservative to moderate, or from aggressive to more aggressive, and so forth. What an investor must realize is that shifting risk profiles does not affect their risk appetite or ability to accept risk. An act like this upsets the investor’s asset allocation, jeopardizing their financial plans and aspirations.
Investors should be cautious and observant in order to avoid being deceived by market noise. Investors must always keep their emotions in check and stick to their risk tolerance.
2) Don’t Leave Your SIPs Midway
During bull markets, investors tend to cancel their SIPs, citing the low profits in the short term. An investor should remember that the primary goal of a SIP is accumulation. Returns are a byproduct of accumulation. Investors should not chase returns but rather focus on accumulating wealth and being content with it. Be patient, and the rewards will come. The same holds true in times of bear markets.
3) Don’t Forget the Fundamentals
While the bull market allows for soaring stocks to reach new heights, it is critical not to be fooled by them. During a bullish trend, the exhilarating highs can easily make price the deciding factor in identifying a solid stock to invest in. A high price is no guarantee of a strong stock; it is critical to understand why the price is so high. Rising prices without robust fundamentals may experience drastic changes in the future.
Ignoring whether a stock can withstand the fundamental test might result in lower long-term returns when the highs peak and the market corrects. While predicting which stock will withstand the many market tests is tough, the one with strong fundamentals is always a better pick.
4) Don’t Get too Greedy
Most of us fail at market timing in both bull and bear markets. Understanding when to enter and quit the market, as well as following its movement, is more difficult than it appears. Joining the bulls in the market can easily affect your exit strategy as you anticipate larger profits or the becoming red-green. While the prevailing feeling when the market is optimistic is to hold a long position, i.e., expect the stock value to rise in the future, it is also quite essential to keep an eye on the portfolio for losers.
Not every bad fruit is a black sheep; most just decay, bringing the entire portfolio down with it. It is critical to be able to exit from top performers as well, rather than to hold on to the stock in anticipation of a new high and to be able to ride it.
5) Check Your Plans
The news of daily new highs can quickly influence even the most risk-averse investor’s risk appetite. While it is critical to examine your plans in light of the market, the bull market can instill anxiety about missing out on the gold mine of daily highs, leading to emotional investment.
6) Buying the Wrong Stocks
When the markets are breaking through barriers with increased optimism and touching new highs, investors should avoid stocks trading at 52-week lows. A stock at its 52-week low does not indicate that it is undervalued or accessible at a lower price compared to peers. Such situations should not entice investors and should be avoided.
7) Keep Yourself Away from Big Investments
Investors should avoid making large lump sum investments while markets are at all-time highs since they may result in bad returns. Instead, investors should invest the entire sum in a gradual and disciplined manner through SIPs over a 24-36-month period. Even in a negative climate, one should continue to invest in their high-conviction ideas in a staggered way at various levels to ensure a reasonable average price.
Bull markets are ideal for realizing profits on previously held investments that have increased in value during a period of optimism and wealth development. They are not, however, the place to forget all of your hard-won financial lessons and best practices. You may avoid all of these blunders in a bull market by remaining patient and steady in your investment approach.
Closure
When you walk into a bull market – there might be a few things that you want to be careful of – and these mistakes should not be made. You can make use of this post to learn some of the mistakes that you just can make in a bull market.
Also Read: An Entrepreneur’s Guide To Stock Market Success
